Partner Incentives – the move to Active Usage

You may be aware that Microsoft has recently evolved our Online Services Advisor (OSA) incentives from measuring deployment to measuring active usage for many of our cloud products. I would like to welcome you to this exciting new development, either as a long-standing partner, new partner or if you are simply looking to branch out with new business opportunities. Whatever category you may fall into this posting should help you understand the changes we’ve made, why we’ve made them, and how it will impact you and your business.

The evolution of this incentives model has spurred two main questions from partners like you;

• Why is Microsoft so focused on active usage?

• How will this impact my business and profitability?

So why focus on active usage instead of deployment? It is important to understand that usage has always been the goal of our incentives programs and thus we view this change as an evolution towards a consistent goal, rather than a change in expected outcome. 

We know that by focusing on customer usage, rather than only selling and deploying, we will impact our joint customers in a positive manner that will drive both customer satisfaction and profitability for our channel;

• Usage results in value realization. When customers are able to maximize value from their investments they are more likely to renew their contracts and more likely to add on additional products and services.

• Customers that actively use our cloud software are more likely to respond favorably on satisfaction surveys, and happy customers benefit the entire partner ecosystem.

As a partner you play an integral role in landing this strategy. Our data shows that subscriptions where a customer works with a partner (ie. assigns a digital partner of record (DPOR) for cloud services) have higher usage than those that do not have a partner associated to them.

Furthermore, this change aligns Microsoft’s corporate strategy and mission. By ensuring we focus not only on selling and deploying products, but also helping drive usage of those products in the market, we enable our customers to reach their full potential. 

“Shelfware” benefits no one in a cloud based ecosystem.

From a profitability standpoint consider that the cloud paradigm we are now operating in is, by its very nature, a “pay for use” model. Users pay only for what they consume at any given moment in time providing them with unprecedented flexibility and scalability. While there may be scenarios where customers pre-purchase cloud licenses for a period of time (eg. a one-year contract) or commit to spend a minimum yearly amount (eg. Azure commitments), it is imperative that we all understand that the initial commitment made by a customer is the first step on their cloud journey and transformation. The true profitability of the cloud comes from what happens next. What services can we offer these customers to further enhance their cloud experiences? What additional products or workloads can complement their existing environment to help increase their productivity and drive efficiencies in their business? And how can we truly evolve to be “trusted advisors” to our customers?

We believe the market opportunity for you as a cloud partner continues to grow as we as an industry continue our transition to the cloud. 

With that in mind the second question posed, “How will this impact my business and profitability?”, is more difficult to answer broadly as it has its roots in your specific business model. In 2013, IDC released a study which demonstrated that cloud partners are able to obtain 1.5 times the gross profit of non-cloud partners, and are able to grow their revenue more than 1.6 times as fast due to the compounding nature of recurring revenue. While the cloud incentives that are offered by Microsoft may be one component to your business’ profitability, it is important to consider the entire cloud profitability model when determining business impact. This model should include at the very least;

• Revenue generated from your own intellectual property,

• Ability to cross sell and upsell existing customers to new products and solutions,

• Managed services revenue (ancillary and complementary),

• Incentives earned,

• And more (check out our cloud partner profitability site on MPN)

The Active Usage model is designed to help introduce a recurring revenue stream to your business by providing a steady payment across the lifecycle rather than a larger upfront payment as the deployment model previously provided.

To help you quantify the incentive impact on your business, I strongly suggest you take a moment to familiarize yourself with our Active Usage Incentive Calculator (you can find it at www.aka.ms/partnerincentives) which will help you understand the incentive earning potential for any given situation.

Another great resource for helping to understand the potential impact on your incentives is the MPN Cloud Dashboard. While this resource will not provide information about incentives earned, you can view your active usage by workload for all customers for which you are digital partner of record (DPOR). The dashboard will provide you with;

• Usage information that can be used to “fine tune” your calculator to provide more meaningful results.

• An understanding of which workloads are in use, or not in use, within each of your customers, and thus where you can focus to increase incentive earnings.

When we look at the earning potential for a partner of record on any given account under both the old deployment model and the new active usage model we see an increase in earning potential for you across a three-year period. 

I will leave you with the results of an analysis I conducted of our commercial O365 E3 SKU, which contains 4 incentive eligible workloads (Exchange Online, SharePoint Online, Skype for Business, and O365 Pro Plus) to determine the impact of the change on incentive payments. The result shows clearly that the incentive earning potential in the new usage based model is higher than it was in the previous deployment based model. Some of the key findings in this analysis were;

1. For all multi-workload SKUS, the total rate card value of each SKU has increased, indicating that 100% usage of all eligible workloads will always net higher incentive earnings than in the previous model.  The rate card is the Microsoft published document (available at www.aka.ms/partnerincentives) that states the value of each seat and workload for the purpose of incentive calculations.

   1. In the old deployment based model a single rate was provided for each SKU.  In the new model, the rate is provided at the workload level, by summating the individual workloads within the SKU, you can see immediately that the total potential incentive earning has increased.

2. In this analysis I found that a single workload with 100% usage will not provide the same incentive payment that the deployment model offered. This means in order to realize the extra potential the new model offers you need to think about how you can expand the usage within the customer to multiple workloads.

3. Using the assumption that customers will only deploy what they use:

   1. a single workload usage by the deployed seats will result in lower incentives than the deployment model would yield

   2. The second workload utilized by the deployed seats will result in an increased incentive payment when compared to the deployment model.

   3. There is a “bump” in the old deployment model at 70% when the accelerator MAY have kicked in which causes the analysis to change slightly showing that with the accelerator, the second workload provides an equal earning opportunity, rather than an increased opportunity.

      1. If you remove the impact of the accelerator, the payment line for the deployment based model continues through the middle of the second workload.

Chart 1: Usage incentives earnings compared to previous deployment model

In conclusion, to capitalize on the increased earning potential that the new model affords, we need to find ways to expand the workloads that are in use within our customers.  

If you have questions or concerns about this transition, please join the conversation on our Yammer and follow the #partnerincentives or #activeusage topics.

Resources:

Ross Couldrey

Channel Incentives